NewNet Industry Profile: Lee Edwards, Virent Energy Systems

2 September 2009

Lee Edwards

Lee Edwards of Virent Energy Systems looks at the stigma surrounding biofuels, the concerns over food-based feedstocks and the role of private investment.

Virent, founded in 2002, is an advanced biofuels technology enterprise engaged in producing renewable liquid fuels, fuel gases and other chemicals, using soluble biomass derived sugars. Virent has raised over $30m in equity financing in its last funding round and is currently in the process of raising another round.

Lee Edwards is the president and CEO of Virent. Edwards has spent the past 25 years working in the petroleum industry, most recently as president and CEO of BP Solar, part of BP’s Alternative Energy portfolio. He has also held a range of executive positions including chief information officer for BP’s downstream business, president for BP Pipelines North America and global brand vice president.

What is Virent’s focus?

‘Virent Energy Systems is an early stage company based on a unique advanced biofuel conversion technology platform. We make gasoline, diesel and jet fuel using soluble sugars from a variety of biomass feedstocks, through a catalytic conversion process. We are making exactly the same products you buy in today’s petrol station, but they are derived from biomass instead of crude oil.’

Which locations do you focus on?

‘We are a US-based company, headquartered in Wisconsin, and through our partnership with Shell, this technology can be deployed across many countries. Our first market for deployment will the US based on market size, strong policy support and speed to implement, but we will certainly look to expand beyond the US over the next ten years.’

Is there more pressure from customers to use environmentally friendly products?

‘There is definitely a trend to get out of the paradox surrounding energy; there is a growing demand for more energy, coupled with a political will to ensure that we maintain energy security. Across the areas we operate there are a number of different government entities asking what the latest, innovative technologies are that would allow this to happen.’

Is there a stigma attached to biofuels?

‘Biofuels is an area that attracts criticism somewhat, mainly as a result of the food for fuel debate and challenges on lifecycle environment impact. What we like to play up to is the fact that Virent has the technology to convert a wide variety of non-food feedstocks. The other stigma attached to biofuels is the effectiveness of ethanol due to the concern surrounding the energy density and blend limits. However, it must be remembered that biofuels is much more than ethanol, this sector can advance the technologies of a variety of non-food feedstocks and can produce products that have significant improvements in performance from some of the alternatives in the first generation.’

Will biofuels that are reliant upon food-based feedstocks die out?

‘I believe that over time advances in agribusiness and conversion technologies will ensure there is not a conflict between meeting the world’s demand for food and energy. There is no question about it, we have to move away from this concern.’

Do biofuels offer an alternative to traditional jet fuel for the aviation industry?

‘Some technologies do and many technologies do not. Ethanol will not work in a jet fuel mixture because oxygen-based substances are not compatible. However, we have created jet fuel from sugar that has shown great promise. You will see a unique but very limited number of conversion technologies that can play into the aviation space.’

Are biofuels more expensive than traditional jet fuel?

‘It is hard to say. It depends on the price of crude oil and also on the price of the biomass feedstock and conversion costs. In some instances we will be able to compete perfectly, but under a low crude price scenario it will be more expensive.’

Is this sector subsidy-dependent?

‘There’s no question that the investment required to build new plants at scale is expensive. To attract that capital, you need to prove economic viability with large scale deployment. That is why there must be the opportunity to leverage progressive policy support through long term commitments to make these larger investments possible.

The other area that comes into play is the fact that carbon is not priced in the world markets today and the technologies being developed today have environmental CO2 supremacy over fossil fuels, which makes a natural opportunity for policy. In addition, we are competing with crude oil. At any given time the price of oil could be very low which renders biomass-based products economically unfeasible. If the price of crude oil falls below $60/bbl, I don’t know of many biomass feedstock conversion technologies which can compete without policy support.’

Does the interest in biofuels fluctuate in accordance with the price of oil?

‘There was a lot of interest when crude oil was on the rise so I would say there is a correlation. When oil crashed almost as quickly as it rose was when interest started to veer away from biofuels because it was not economically competitive with the new lower oil prices. Today the interest is building again for advanced technology opportunities.’

Do you expect the price of oil to rise?

‘I expect the price of oil will continue to be volatile. I also expect that the value of carbon will be priced and therefore I expect biofuel alternatives to have an increasing appeal. I worked for BP for 25 years and learned how dangerous it can be to get into the business of predicting oil prices.’

Does uncertainty hinder investment into this area?

‘The financial crisis has made the market place more risk averse resulting in new technologies being scrutinised more than ever. Companies that can leverage equity with partnerships/collaborations and some form of government subsidy will gain advantage by sharing the risks so it does not feel like the equity owners alone are putting all the capital into an inherently risky project. That says to us that we need a variety of funding sources to mitigate some of the risks and leverage some of the opportunities to get up to scale as soon as possible.’

Should governments be doing more?

‘A great deal of enthusiasm has been seen to come out of the US Department of Energy and we are aware of many VC funds being committed to these projects. However, the US is still in the process of monitoring loans and assessing the state of the market so we are yet to see project finance money flowing into projects with new technologies. That said, the rhetoric is very promising and I believe the US is now seen as the next big clean energy market to take off, full of hope and optimism.’

What role does private investment play?

‘It plays a key role and we have received a great deal of support from our existing investors in providing us with capital and a long-term vision of what is possible. In turn, they have also shown patience for developing new technologies. This support has provided us with a foundation to attract new business partners and additional funding. At present, we are expanding into a new demonstration plant which is heavily reliant upon private investment.’

Has the economic crisis caused a set back?

‘No. Our current project was approved and funded last year and is currently under construction and will be operational before the the close of 2009. We are now looking beyond this plant and expect to build our first fully commercial scale facility by the end of 2015. We benefit from having Cargill and Honda as investors and have a significant number of collaborations with Shell which aid us considerably. We are working on attracting new investors while leveraging government support to help us too. We are also in the middle of our Series C financing round in the range of $25-40m and are confident we will achieve that figure, looking at the right balance of financial investors and strategic investors to join our existing investors.’

What’s the biggest challenge you face?

‘I think the biggest challenge is to deliver a working technology at large scale as quickly as possible in order to keep ahead of our competition.’

How do you see this space evolving?

‘We will see a number of complimentary technologies emerging and biofuels will have made a large impact by 2020. I think we will witness extraordinary growth, not just in the US but on a global basis. The demand for energy is phenomenal and countries will look to obtain energy security and limit environmental impact. In my view, biofuels will play a crucial role in taking our energy market and transforming it into a more secure and low carbon market place.’

Copyright © 2009 NewNet

Tags: biofuel

This story was published on Wednesday, September 2nd, 2009 at 6:02 pm and is filed under industry, profiles. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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